Help in the Commercial Real Estate Space!

from Las Vegas, Nevada

posted 9 months ago

Hi,

Looking for advice regarding financing for an apartment building. I'm just starting out in the commercial real estate investing game and I'm seeking an investor that is experienced in this area to share your thoughts on a couple ways I could finance the property. For instance, examples on how you financed your first apartment building would be great! Or if you know of any hard money lenders in the Las Vegas area I could utilize to acquire the property and get my foot in the door and then refinance the property with a conventional lender, rip the forced appreciation out from the renovation and repeat the process only next time I'll have capital to use a conventional lender from the beginning. Any thoughts or advice would help me out substantially!

Rental Property Investor from Glen Rock, NJ

replied 9 months ago

@Jairmiya St. Hilaire There're several things you can do. You should always ask the owner about owner financing first. In terms of finding hard money lender (HML), they are always hanging out at the REI meetups. So go to meetup dot come and find RE related meetups in your area and start attending them. You can also look at the meetups' boards - a lot of folks put their advertising there. In addition, if you know any flippers in your area, ask them for HML recommendations. You can also find some private lenders at these REI meetings. There're people interested in getting a steady interest in exchange for lending you money for some time. Last but not least, if you happen to own a house and have some equity in it, you can always apply for HELOC and use it to buy apartment building.

Investor from The Woodlands, Texas

replied 9 months ago

A common misconception by would be commercial property investors is that they can enter the arena with little or no money. While this may be possible in residential, utilizing any one of a number of government guarantee programs (VA, FHA, Farmers Loan Adm, etc., state or county down payment assistance), the same is not true in commercial real estate.

Often, the inexperienced believe that with a hard money loan they can obtain 100% leverage of multi family or commercial property. Not even close. The truth is that hard money lenders max out at 65% LTV in the commercial arena, and on purchases the average is closer to 55 - 60%, IF the property cash flows, the borrower has a significant contingency reserve, and direct experience owning / managing commercial property.

Another popular myth is that commercial hard money lenders will lend on appraised value, not on purchase price. Actually, almost all will lend on the LOWER of appraised value or purchase price.

Now, back in the day, like the 1970s and 80s, commercial property WAS purchased with no buyer cash. Not often, but often enough to make this a viable strategy. Cap rates were higher, and the lack of available financing actually worked to the buyers/borrowers favor. Sellers knew that at best a borrower might be able to obtain a 50% LTV loan, so they were accustomed to accepting seller second, at whatever interest rate made the deal work. Often, buyers had 'substitution of collateral' clauses put in private mortgage docs, and it wasn't all that uncommon to have three or more mortgages on a single property. And these were the LEGAL games. I don't even want to get into the 'grey' or 'black' hat arenas of that era.

While A FEW deals can still be done without or with a relatively small buyer/borrower capital contribution, the buyer would need to have a ton of experience, expertise, knowledge, and a verifiable track record of success in similar endeavors. Without trying to brag, that's why I can raise $1,000,000 from investors in 10 minutes, and $5,000,000 in 24 hours. For an inexperienced would be investor to believe he can do the same is fantasy. Real estate isn't like high technology or social media; it's a competitive industry requiring a significant amount of education, experience and capital to be able to snare the medium to large size deals.

from Las Vegas, Nevada

P.S. I knew that when you first start off, unless you have some type of experience in the CE arena, finding an investor to invest in deal with you without any or little of your own money in the deal is going to be next to impossible to do. I guess what I'm looking for is a quick phone call or sit down over a cup of coffee with someone that can give me a heads up about those things. For instance, if I were to sit down over a cup of coffee and here how some of you guys speak with the investors, what tone do you use with them, how to use the leverage you have on them and get them to believe that the deal is a good deal and they would get a great return on their money. How does one get started without any experience and a small amount of capital?

@Alina T.- What would consider to be a sizable investment in a Commercial Real Estate Deal?